India’s largest conglomerate, the Reliance Group, is having a bad time at the stock exchanges as the stock of its flagship company, Reliance Industries, is down 8% in 7 sessions!!

2022 was a very volatile year for the stock as it saw several major swings during the year. 2022 started off with the stock seeing significant declines. Around the later part of January, when the tensions around Russia and Ukraine were high, Reliance was one of the stocks which saw the highest declines.

In the second half of January, the stock Reliance fell 6.6%! February was no better as panic selling all over the world affected the stock of Reliance as well. On 24th February, when the Russian army attacked Ukraine, the stock of Reliance fell 5% as global markets were registering similar declines.

Due to selloffs triggered by adverse global investor sentiment, the stock fell to its lowest level in 6 months before it saw some recovery. However, the recovery that the stock picked up, mostly on account of surging oil prices after early March, was so effective that the stock jumped all the way to its lifetime high of Rs 2,847.60 per share, gaining almost 30% in 2 months!!

But when corrections began, the stock suffered severe declines. Despite reporting robust results such as 23% growth in profits and 36% growth in revenues to become the first Indian company to reach $100 billion in revenues, the stock fell sharply, but rose once again, only to fall again as volatility was high in the scrip.

However, the largest intraday decline was reported on 1st July 2022 when the stock fell over 7% in a single day. This was on account of the government’s imposition of a windfall tax on oil companies. 

Amid the fight of bulls and bears, the company’s Q1FY23 results ended up giving a nudge to the bears as the scrip fell 4% in a day. This was because the company did not perform as well as investors expected it to. According to estimates, the company was expected to report around 90-100% growth in profits since the prices of oil had seen records levels.

However, the company’s profits fell short of expectations on account of heavy windfall taxes levied by the Indian government. By September 2022, a downtrend was visible as the overall trend of the stock was downwards as the stock was making lower highs and lower lows.

The trend was expected to continue, but the stock made a higher high as it touched a 5-month high price and climbed 18.2% in 2 months to reach around Rs 2,730 per share. The company had, at the time, announced that it was entering in the artefacts business and had a growing share in the telecom market. However, the stock reversed once again in December 2022 as has been declining ever since. The stock has lost around 19% in 3.5 months!!

But why is the stock declining??

  • FII holding in the company was at 6-year lows, only 23.48% as Reliance Industries remained at the selling counter of FPIs for the fifth consecutive month.
  • The collapse of major US Banks has incited a selling pressure that has roped the Mukesh Ambani led company into it.
  • Lack of a tariff hike is negatively affecting the ARPU of the telecom arm.
  • A further slowdown is expected in the consumer business as the segment has seen negative growth recently due to inflationary pressures. This adversely affects the company’s retail business.
  • The company’s oil business is facing weak demand as supply has exceeded the demand. As such the segment’s contribution to total revenues has been declining.

What is the future outlook for Reliance?

Fundamentally, the results for Reliance Industries for the quarter ended in December 2022 was marginally above estimates. Revenues and profits had registered a growth of 15% each annually as the retail and telecom segments showed robust growth.

Moreover, the company has undertaken several plans that will assist it in growing their businesses:

  •  Reliance Jio recently added 34 cities to its list of 5G available cities and took the total to 365. It is currently the market leader in the telecom segment.
  • Reliance Retail recently acquired the India operations of Metro Cash & Carry. This move will give a significant boost to the company’s business as it will be able to access the company’s network of 30+ stores, broad client network and strong supplier network.
  • The company is constantly looking into new fields to expand. It recently acquired Shubhalaxmi Polyester and Shubhalaxmi Polytex Limited to expand its reach into the polyester business.

 

Technically, the stock is in a downtrend. The stock has been making lower lows and lower highs since last year. Although the stock briefly made a higher high, it fell once again and resumed its overall downtrend.

The stock recently fell throught its support (now resistance) at Rs 2309.90 per share (marked in yellow). It also briefly challenged its immediate support at Rs 2202.75 per share (marked in blue) but reversed back from it.

It is trading below its 5,20,50,100 and 200-day moving averages as RSI is at 32.43, dangerously close to its oversold zone. Interestingly, while  Reliance Industries at its 52-week low, the company’s stock has found a supporter in JP Morgan. JP Morgan has maintained its ‘overweight’ rating on the stock as it expects a 33% upside on the stock!

According to the brokerage, the company’s continuous capex to expand its operations, growing market share, dominant market position and positive refining segment outlook makes the stock an attractive pick for long-term investors. Due to the RSI being near the danger zone and brokerages’ favourable view on the stock, which currently presents an attractive entry point, buying could pick up in the coming weeks.

Report by Jobaaj.